The German government confirmed an incentive scheme for electric vehicles (EVs) on May 18. That’s a big step for the European – and global – EV market. Here’s why.
Germany is the largest car market in the European Union: one-fifth of new cars registered in the EU end up on Germany roads. Moreover, almost one-third of all cars registered in the EU in 2015 were manufactured in Germany. Incentivizing German consumers and car manufacturers to embrace electric powertrains is therefore important for the entire European EV market.
But Germany’s influence on the global auto industry is even greater than that. More than $28 billion in automotive R&D spending happens in Germany, and VW, Daimler, and BMW are among the top seven global automakers in terms of technology development efforts. This makes the country part of the brain that decides where the world’s auto technology is going. In the past year, Volkswagen, Audi, Mercedes, and BMW have all announced strong moves toward electrification. Where previously the German government sought to hold back progress on low-carbon vehicles, now it is pushing forward. In late 2015, Germany joined the progressive group of Zero-Emission Vehicle Alliance governments, calling for all electric-drive vehicles by 2050. And now this: A major national electric-vehicle promotion package.
Up to now, Germany’s efforts to promote EVs have largely been confined to regional demonstration projects. Incentives for EVs, such as ownership tax reductions, have been dwarfed by incentives in leading markets. For instance, a German owner of a medium-sized battery electric vehicle (BEV) would save approximately 400 euros in ownership taxes over a five-year period. The same vehicle would receive a 6,200 euro subsidy in the UK and a 6,300 euro subsidy in France.
The new proposal promises to narrow the gap between incentives in Germany and leading European EV markets. German car buyers will receive a 4,000-euro subsidy for battery electric vehicles and 3,000 euros for plug-in hybrid electric vehicles, starting in mid-May of this year. Only EVs with a base model list price below 60,000 euros will qualify for the subsidy, to prevent tax money from paying for luxury vehicles. (Tesla is not amused.) BEVs will also be exempt from ownership taxes for ten instead of five years, though the fiscal impact of the ownership tax exemption will in many cases be well below one thousand euros over the ten-year period.
One somewhat unusual feature of the subsidy scheme is that car manufacturers are expected to cover half of the cost. In order to qualify for the government subsidy, the bill of sale needs to indicate that the sales price was reduced by the same amount as the subsidy. While many manufacturers, including Volkswagen, Daimler, BMW, and foreign automakers, are planning to match the government subsidy, critics point out that manufacturers and dealerships could game this system, for instance by increasing the list price of EVs beforehand.
The German government budgeted 600 million euros for the scheme. With the car industry matching this investment, the subsidy scheme could bring between 300,000 and 400,000 EVs to German roads. The subsidy will expire by 2020, or when the funds are exhausted if that happens sooner, and will be awarded on a first-come, first-served basis.
The proposal does not stop at subsidizing EVs. The government plans to invest 200 million euros in fast-charging infrastructure and 100 million euros in slow-charging infrastructure between 2017 and 2020. Ten thousand new slow charging stations and five thousand new fast-charging stations are proposed, though it is uncertain whether the budgeted funds will be sufficient cover all of the costs. The proposal also budgets 100 million euros to electrify one-fifth of the federal government fleet.
It is impossible to predict definitively what all of this will mean for EV registrations in Germany. But two studies we recently released paint a pretty clear picture of the likely outcome. Countries with generous incentives for EVs tend to have high EV shares.
In one of those studies, we compared five European EV markets – Germany, France, the Netherlands, Norway, and the UK – and conducted case studies for two cities in each country. In the other, we focused on EV policies in Germany vis-à-vis California. If we combine the results from both analyses, we can plot the EV share of new car registrations in 2014, represented by marker size in the chart below, against public charging-point density and fiscal incentives for a medium-sized battery electric vehicle.
As you move toward the top right of the chart, the markers tend to get bigger; that is, regions with higher incentives and denser charging infrastructure generally also have a greater uptake of EVs. While Germany is now in the bottom left corner (low incentives, low charging availability), the recent proposal moves the country closer to the cluster in the center of the plot. It remains to be seen how much the German marker (that is, the German market) will grow.
A survey we conducted as part of the Germany-California comparison also suggests that we can expect to see the German EV market flourish with the help of the new incentives. Ninety-six experts on electric mobility we surveyed agreed that vehicle price is the biggest obstacle to EV uptake, and lack of opportunities to charge EVs – at work, at home, or in public spaces – also ranked high as an obstacle. The recent proposal addresses both of these issues.
It’s worth pointing out that the data we are presenting in the figure isn’t entirely unambiguous. Some markets have substantial incentives and abundant charging infrastructure and still have relatively low EV shares. The opposite is true for other markets. One of the reasons for this inconsistency is that execution matters. A well-orchestrated campaign to drive EV uptake requires more than just money. Good practices include tailoring incentives to local consumer needs (see here on local incentives in U.S. cities) and educating consumers about electric mobility (see this excellent website in the UK). Germany currently does not have a one-stop shop for educating consumers about electric mobility and will have to improve its public relation efforts as it moves from regional demonstration projects to the national ramp up of electric mobility.
The German government wants to see one million EVs on the road there by 2020, a lofty ambition considering that the milestone of one million global cumulative EV sales was only passed in the fall of last year, and the German EV fleet currently only numbers 55,000. Whether the new incentives will be enough remains to be seen, but it’s a step in the direction of meeting the goal. And it certainly will help increase the momentum of global EV sales, which nearly doubled from 2014 to 2015. Regardless of whether Germany meets its target, accelerating EV sales in Germany will give a tremendous boost to the overall European EV market.